Question

Define and discuss terms uses

Acid Test

Net working capital

Future Value

Present Value

Net Present Value

Cash Flow

Return on Investment

Return on Assets

Answer 1

Acid Test;

Acid test ratio help in measuring the short-term liquidity of a company. In other words we can say that acid test ratio shows relationship between liquid assets and current liabilities.

This ratio is very helpful in knowing that how quickly a company able to meet its’ short-term obligations.

Net Working Capital;

Net working capital refers to the difference between current assets and current liabilities. In other words we can say that net working capital refers to the excess amount of current assets over current liabilities.

Future value;

Future value is a financial term which indicate about the value of money to be received in future time period. Future value is calculated on the basis of time period and discounting factor.

Present value;

Present value is also a financial term which tells about the value of money to be received in present time. In other words we can say that value of future money after discounting as per time which will be received in present day is known as present value.

Net present value;

Net present value refers to the difference between discounted value of future inflows and initial investment. This is very useful in finalizing an investment proposal because it tells about profitability in term of NPV.

Cash flow;

Cash flow refers to movement of cash in the firm, which includes inflow and outflow of cash. In other words we can say that cash flow tells about how much money goes out and how money comes in.

Return on investment;

It is a measurement of profitability of the company or firm which is calculated on the basis of net income and investment made. This ratio tells about the average return on invested amount by the firm or company.

Return on assets;

It is also a measurement of profitability of the company or firm which is calculated on the basis of net income and assets. This ratio tells about the average return on total assets of the firm or company.